Tennessee Detainer Actions: Not Just for Tenants and Landlords

What if you own real property, but someone else has possession of the property, and you want them gone? You evict them. But, as you’ll see under Tennessee statutes, they don’t call it an “eviction” lawsuit; they call it a “detainer” lawsuit.

The statute in Tennessee is Tenn. Code Ann. § 29-18-104, titled “Unlawful Detainer.” That statute provides:

Unlawful detainer is where the defendant enters by contract, either as tenant or as assignee of a tenant, or as personal representative of a tenant, or as subtenant, or by collusion with a tenant, and, in either case, willfully and without force, holds over the possession from the landlord, or the assignee of the remainder or reversion.”

These detainer actions are generally brought in general sessions court, where, as I’ve noted before, you can exceed the $25,000 jurisdictional limit. Also, even though general sessions appeals are very easy on most matters, they are complicated and expensive in general sessions court.

So, if you’re a landlord, you’re probably reading that statute and thinking it’s exactly what you need, right? But, what about if you’ve purchased the property, either by a typical sale or a foreclosure? In that case, you’re not a landlord, and the defendant isn’t entering by contract (i.e. lease). Does a different statute apply?

No, said the Tennessee Court of Appeals in Federal National Mortgage Association v. Danny O. Daniels, W2015-00999-COA-R3-CV (Dec. 21, 2015).  There, the Court noted that the Deed of Trust will create “a landlord/tenant relationship … between the foreclosure sale purchaser and the mortgagor in possession of the property,” and, as a result, “constructive possession is conferred on the foreclosure sale purchaser upon the passing of title; that constructive possession provides the basis for maintaining the unlawful detainer.”

In such a case, a plaintiff must prove: (1) its constructive possession of the property (i.e. ownership of the property); and (2) its loss of possession by the other party’s act of unlawful detainer.

In short, the detainer statutes in Tennessee aren’t well crafted. Sometimes they reference landlords and tenants; sometimes they don’t. Courts have a tendency to construe statutes as written and to assume that the legislature means what it says when it uses specific words. That’s bad news for the foreclosure sale purchaser, who isn’t a landlord and who isn’t dealing with a tenant.

Here, however, it’s clear that the legislature should have proofread the statutes a few more times. Fortunately, Tennessee courts have applied the statutes in a broader sense.

 

Insufficient Service of Process Arguments May be Recognized Under Tennessee Law

Note: This post contains updated information after its original posting date.

When it comes to creditor rights deficiency lawsuits, it’s rare that I see something new.

Most defendants’ Answers to my lawsuits to collect unpaid debts follow the same pattern: They admit the jurisdictional/party paragraphs, claim they lack sufficient information on the amount of the debt, and then deny all paragraphs alleging default and asking for a judgment.

Recently, however, I saw a creative argument that, honestly, freaked me out.

It was an Answer that contained the following “Affirmative Defense:”

Plaintiff’s claim should be dismissed due to insufficient service of process for failure to include required information on the Return of Service. The Return on Service of Summons for both Defendants fails to include the process server’s name and/or address as required by Tennessee Rule of Civil Procedure 4.01(2). See Lasher v. Robertson, No. 03A01-9402-CV-00075, 1994 WL 579972, *2-3 (Tenn. Ct. App. Oct. 24, 1994).

In that Lasher opinion, the Court of Appeals was faced with a return on a Summons that “contained only the date and the unreadable signature of the process server.” 

Two years later, the defendant filed a motion to dismiss, alleging insufficient service of process of the lawsuit. That motion was granted.

Citing Tenn. R. Civ. P. 4.01, the Court of Appeals agreed.

For starters, “The process server must be identified by name and address on the return.” See Tenn. R. Civ. P. 4.01(2).   Further, “The person serving the summons shall promptly make proof of service to the court and shall identify the person served and shall describe the manner of service.” See Tenn. R. Civ. P. 4.03(1).

Applying those rules, the Court of Appeals wrote:

The Plaintiff’s process server met none of the requirements contained in Rule 4.01(2) of the Tennessee Rules of Civil Procedure. The process server was not identified by name and address on either the return of service or on the affidavit; he did not promptly and within the time during which the person served must respond, make proof of service to the Court; he did not identify the person served nor describe the manner of service. Even considering the very untimely filed affidavit of Daniel C. Derrick, the requirements of Rule 4.03(1) of the Tennessee Rules of Civil Procedure still were not met. Indeed, the record is totally void of the location of Defendant Robertson’s residence. Neither Defendant filed an answer and there is no indication in the record before us of any documents being served upon either Defendant during the pendency of the proceedings in the lower Court.

Id. at *3.

Given the custom and practice regarding service of process Tennessee handling consumer and commercial collection lawsuits, this case and analysis can have broad reaching impact.

In the end, there’s a lesson here: (1) Include the process server’s name and address on the Summons; and (2) When in doubt, include the method, manner, and details of the service on your Summonses.

Ineffective Service of Process Will Not Toll the Statute of Limitations in Tennessee: Act Fast in Obtaining (or Correcting) Service

Earlier this year, I wrote a blog post explaining that, under Tenn. R. Civ. P. 3, just because you filed a timely lawsuit, doesn’t mean that you don’t have statute of limitations issues–you have to also accomplish prompt and timely service of process.

Recently, the Tennessee Court Appeals re-visited that issue in Kimberly Urban v. Robin Nichols, and it came to the same conclusion. In the Urban case, the Plaintiff filed the lawsuit within the one year statute of limitations, but the Plaintiff delayed in obtaining valid service of process and, worse, delayed in correcting her defective efforts to obtain service. The Court found that the ineffective service, followed by the long delay in correcting the service, failed to prevent the statute of limitations from expiring. Accordingly, the Court dismissed the lawsuit.

But, basically, that’s the same law as the blog post from April, right? Yes, but what I found interesting about this new case is that, if the Plaintiff had been diligent about correcting the ineffective service of process, the Court would have cut her some slack.

In fact, the Court said she could have amended her Complaint under Rule 15 to correct the defective name of one of the defendants or she could have issued new summons. If she had made any of these corrective efforts in a timely fashion, the Court suggests, the case would not have been dismissed on the technicalities, since Tennessee law and policy favor litigants to amend their pleadings to have disputes resolved on the merits.

So, the moral of the story may be: If you make a technical error, act fast in getting it fixed or at least brought before the Court.

Forum Selection Clauses Will be Upheld by Tennessee Courts

You don’t need a law degree to know this: The tricky stuff in a contract is always in the fine print, at the end of the contract.

For instance, most good contracts will invariably include a forum selection clause. This is generally a line at the end of the “Miscellaneous” paragraph that says something like: the parties to the contract agree that any action or proceeding arising under or related to this agreement shall be filed only in the United States District Court or the state courts in Nashville, Tennessee.

Of course, forum selection clauses don’t always say “Nashville,” but they do generally list the forum in a location that is: (1) convenient to the party preparing the contract; and (2) inconvenient for the other party. It makes sense, the contract drafter says, because that company doesn’t want to open itself to lawsuits all over the country. Presented with these “take it or leave it” terms, the other party often doesn’t object, no matter how burdensome the forum would be, because a party doesn’t generally sign a contract anticipating a default.

Unless, you know, they have a lawyer review the contract and warn you about the doomsday scenario. In Tennessee, these provisions are generally enforceable, as noted in a recent Court of Appeals opinion, The Cohn Law Firm v. YP Southeast Advertising & Publishing, LLC. In that case, a Memphis-based law firm filed suit against the Yellow Pages in Memphis; in response, the Yellow Pages moved to dismiss, citing page 3, paragraph 18 (titled “Miscellaneous”) of the contract, stating that all lawsuits must be filed in Georgia. The lower court dismissed the lawsuit for lack of jurisdiction and improper venue, and the appellate court agreed.

That Court wrote that: “Generally, a forum selection clause is enforceable and binding on the parties entering the contract. Lamb v. MegaFlight, Inc., 26 S.W.3d 627, 631 (Tenn. Ct. App. 2000). A forum selection clause will be upheld if it is fair and reasonable in light of all the circumstances surrounding its origin and application. Id. (citing Dyersburg Mach. Works, Inc. v. Rentenbach Eng’g Co., 650 S.W.2d 78 (Tenn. 1983)). A party seeking to invalidate a forum selection clause must prove that the clause resulted from misrepresentation, duress, abuse of economic power, or other unconscionable means. Id.”

The Court further wrote: “Tennessee law is clear that the party challenging the enforcement of the forum selection clause “should bear a heavy burden of proof.” Chaffin v. Norwegian Cruise Line Ltd., 1999 WL 188295, *4 (Tenn. Ct. App. Apr. 7, 1999).

The Plaintiffs argued that the contract was an “adhesion” contract, i.e. a boilerplate provision that wasn’t discussed or contemplated, and the Court ultimately rejected this, since the forum selection clause wasn’t patently unfair and had a reasonable basis.

I estimate that most contracts have these provisions in them; if they don’t, they should. A good lawyer will always consider the “worst case” scenario, even at the front end of the deal. In doing that, no lawyer worth his billable hour rate will overlook the impact of a forum selection clause.

A Creditor Doesn’t Have to Foreclose First: New Court of Appeals Case Answers This Common Question

When a loan goes into default, the lender has many options. Sometimes, they go straight to foreclosure. Other times, they’ll file a lawsuit first. Maybe the collateral isn’t worth repossessing; maybe the secured creditor wants to be the first to get to a judgment, in order to execute on other assets or take a judgment lien.

When a bank files a collection lawsuit prior to foreclosing, the borrower always yells in defense: “But you haven’t sold the collateral yet!” and argues that the lawsuit is premature or that the borrower is entitled to some sort of credit or offset to the ultimate judgment.

The defendant is wrong, and the Tennessee Court of Appeals reminded us of that in an opinion issued yesterday in Eastman Credit Union v. Hodges. This was the exact argument the defendant made: “that the judgment of the trial court should be reversed because Eastman did not repossess a motorcycle that served as collateral for one of Hodges’ loan obligations [and that] the value of this motorcycle should have been deducted from the outstanding balance of his loan.”

The Court of Appeals’ response? “His position has no merit.”

The Court held that Tennessee Code Annotated § 47-9-601 does not require a lender to foreclose on its collateral prior to obtaining a judgment. That statute provides that a secured party “[m]ay reduce a claim to judgment, foreclose, or otherwise enforce the claim, security interest, or agricultural lien by any available judicial procedure[.]”  Specifically, the Court wrote: “These rights, in addition to others provided by the section, are ‘cumulative[,]’ and the statute expressly allows them to be exercised simultaneously. The statute, however, does not require that a secured party foreclose on collateral prior to or simultaneous to seeking a judgment.”

It’s a good case to remember the next time a defendant raises these issues, and, trust me, they will.

Quick Note on Negligent Misrepresentation in Tennessee

One of the ways this blog helps me is as a research note. When I find a statement of an issue of law, I’ll post it here so I’ll know where to find it later.  Good for me, sort of boring for you. 

In the case of First Tennessee Bank, N.A. v. Shelby Village Mobile Home Park, LLC, et. al., the Tennessee Court of Appeals outlined the elements of the Tennessee tort negligent misrepresentation. Here’s what the Court said:

“A party pursuing a claim of negligent misrepresentation “must prove by a preponderance of the evidence that the defendant supplied the information to the plaintiff; the information was false; the defendant did not exercise reasonable care in obtaining or communicating the information; and the plaintiff justifiably relied on the information.” Hill v. John Banks Buick, Inc., 875 S.W.2d 667, 670 (Tenn. Ct. App. 1993) (citations omitted). The tort of negligent misrepresentation is most often recognized “in connection with business or professional persons who carelessly or negligently supply false information for the guidance of others in their business transactions.” Houghland v. Sec. Alarms & Servs., Inc., 755 S.W.2d 769, 774 (Tenn. 1988). Our Supreme Court has recognized, however, that, “[t]his theory of law . . . does not convert every breached promise or contractual undertaking into a basis for the rescission of otherwise valid contracts and the abrogation of their terms.” Id.”

 

Attorneys Fees Can be Recovered in a Tennessee Lawsuit, but only if the contract or statute allows them

Sometimes, clients ask “Why didn’t my Judgment include your attorney fees?”

(Note: Actually, I don’t get that question very much, since I spend a good deal of time on the front end, explaining the process and rights to clients, so they know if they can’t recover fees.)

Here’s why: Tennessee follows the “American Rule” on awarding attorney’s fees which states that “a party in a civil action may recover attorney fees only if: (1) a contractual or statutory provision creates a right to recover attorney fees; or (2) some other recognized exception” applies. Cracker Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009).

The contract provision allowing attorney fees to be recovered has to be very specific. In the Cracker Barrel case, the contract at issue provided that the prevailing party should recover “all costs and expenses of any suit or proceeding.” The Tennessee Supreme Court held that this language was not specific enough to award attorney fees (instead, it allowed recovery of court costs and litigation expenses). 

This is an important issue, as the ability to recover your expenses and costs as part of your action will be a big consideration in any decision to file a lawsuit. Lawyers are expensive. Keep that in mind on the front end, when you’re preparing a contract or agreement, and get very specific text allowing for recovery of attorney fees. 

Employers Who Provide False Garnishment Answers May End Up Owing the Money Themselves

I got a judgment a few months ago, and, having found out where the judgment debtor works, I issued a wage garnishment against the debtor’s wages.

And, oh man, did I ever have that guy. Not only did he work there, but he was listed (and pictured) on their website as an executive. It was only a matter of days until I got my money, right?

Well, not exactly. The employer filed a response that said “Terminated.” That was a surprise. I checked the website. The guy was gone.   Did my garnishment get him fired?  Strange.

So, out of curiosity, I called the employer and got the company directory. The debtor was still listed. So, I waited a few weeks, and they were still listed. I tried the extension and, within seconds, I had the debtor on the phone.

Long story short, I think this employer is lying. What do you do?

Tenn. Code Ann. § 26-2-204 requires garnishment responses to be under oath. The law even anticipates that an employer might lie: “The answer of the garnishee is not conclusive.” Tenn. Code Ann. § 26-2-205. To that end, Tenn. Code Ann. § 26-2-206 allows a creditor to get a judgment against the employer if they actually have assets of the debtor in their possession.

So, in the end, a creditor has rights against a dishonest employer, but there are hoops to jump through. Though the statutes don’t lay this out, the procedure would be to subpoena the payroll records or otherwise get testimony from the employer to establish the veracity of the response. Then, the creditor must take the employer back to Court under § 26-2-206 to get a judgment.

It’s a hassle. But, if you lie, employers, I’m happy to take a judgment against you.

General Sessions Appeals are Cheap and Easy, But Detainer Judgment Appeals are Expensive and Tricky

In some law review article I’ve read (I’ll find you a citation later), the author said that the right to appeal a detainer action is really no right at all, because it’s so expensive to appeal in that scenario.

This is a reference to the detainer judgment appeal bond contained in Tenn. Code Ann. § 29-18-130(b)(2).

That section says in part that:

…if the defendant prays an appeal, the defendant shall execute bond, or post either a cash deposit or irrevocable letter of credit from a regulated financial institution, or provide two (2) good personal sureties with good and sufficient security in the amount of one (1) year’s rent of the premises, conditioned to pay all costs and damages accruing from the failure of the appeal, including rent and interest on the judgment as provided for herein, and to abide by and perform whatever judgment may be rendered by the appellate court in the final hearing of the cause. …

So, where the tenant (or other person in possession of the real property) loses in General Sessions Court and the Plaintiff/Landlord/Property owner wins a detainer judgment for possession, sure, that tenant has the right to appeal. But, they have to post a bond equal to one year’s rental value of the property.

That’s a pretty tall order. Of course, if they don’t have the money or credit to post a cash bond, they can always try to find some dummy to sign on as a surety on the bond.

So, in short, this  isn’t the typical $250 Appeal Bond that you see in most other Sessions appeals.  That’s a quick and easy way to buy more time. This detainer bond could be $10,000 or it could be $150,000 (for fancy Belle Meade mansions or commercial properties).

Keep in mind, a losing defendant can still file an Appeal without complying with this bond requirement.

A detainer appeal without the “one year rent” bond is still an effective appeal, but it doesn’t help the defendant in any way in keeping the property (See what the Tennessee Court of Appeals ruled in December 2013 in Johnson v. Hopkins).

 

Lawyers: Read What the Bond Says Before You Sign It

In Davidson County, I file a Cost Bond with every new lawsuit. A “Cost Bond” is given pursuant to Tenn. Code Ann. § 20-12-120 and means that the plaintiff’s lawyer is acting as surety for payment of all court costs in the matter.

These costs generally run from $200 to $500 and, of course, it’s the client’s obligation to pay; nevertheless, the Clerk wants the lawyer to make sure those costs get paid. If, at the end of the case, the court costs aren’t paid, our Clerk gives it about 6 months, then they send the attorney a bill under the Cost Bond.

No big deal, right? (Well, it’s sort of a big deal. I never sign as “David Anthony”–I sign them as my law firm, “Bone McAllester Norton”).

Recently, I was blown away by seeing an attorney sign a different type of bond. This attorney signed a “Surety Bond,” in the mid-five-figures-range, pursuant to Tenn. Code Ann. § 29-18-130(b)(2).

If you don’t know that statute, that’s the detainer appeal bond statute, which requires a defendant who appeals an eviction judgment to post a bond in the amount of one year’s rent (in order to remain in possession of the property). Instead of posting a cash bond, one option is to have two Sureties guaranty payment of any damages and accruing rent.

So, in the event that the defendant loses the appeal, this attorney is personally liable for the damages. This defendant hasn’t been paying her mortgage, and it’s quite possible that she isn’t going to pay an entire year’s rent on the property. But guess who will be liable for the entire debt?

Yep. This attorney. For the entire amount. Watch what you sign.